Thursday, April 06, 2006

How to Make a Million--Follow the Schedule 14A.

The 10Q Detective thought that it was time to do a self-help column for our readers. Money: Not how to spend it—but how to get it.

Plugging in the words “million, dollars, get,” on several Internet search engines pointed us to hundreds of URL addresses with inventive, resourceful, and/or mundane action-oriented ideas including: How to Use Your Mind to Make a Million Dollars; Learn How to Make a Million Dollars on Just $1 per Day; Adult Home Entertainment—How to Get Started; Work at Home—Earn $10,000 a Month; or, Make a Million Dollars in Real-Estate with Less than $2,000 to Start.

All of the aforementioned websites rang with specious reasoning, but sadly the only ones these sites guaranteed to make money for were the individuals proffering the advice.

Albert Einstein is credited with having said: The greatest mathematical discovery of all time is compound interest. The problem with this truism is time itself. Unfortunately, if one invested one dollar per day at an APR of five percent, it would take 100 years to earn one million—and [increasing one’s risk] and investing at a guaranteed 15 percent yield would still take years (40) to get the one-million dollars.

Ergo, the odds of one amassing the purchasing power to afford a $370,000 Pagani Zonda C12S (a 200-mph Italian racer built in Italy and powered by a Mercedes-Benz AMG V-12), or even a Lamborghini Murciélago—while still having the visual acuity to drive—are probably on par with one witnessing a wormhole opening in the fabric of four dimensional space-time continuum!

Having read hundreds of SEC filings, the 10Q Detective proffers serendipitous insight as to how even billionaires seek to “get theirs”:
  • · Inheritance. Sam Walton was a J.C. Penney clerk who opened his first discount store in Rogers, Ark. 1962. Wal-Mart Inc. had its IPO, offering 300,000 shares on Oct. 1, 1970, at $16.50 per share. Today, Wal-Mart (WMT-$46.87) is the world’s largest retailer. In the last three decades, the stock has had eleven two-for-one splits. This means every one share owned in the initial offering would have become 2,048 shares. From 1970 to 2003, the stock price increased 6,950 times, 30 percent compounded growth per annum. When Sam Walton died of cancer in April 1992, he left his family with a 40% stake in the company, which is worth an estimated $78.4 billion today. According to 2006 Richest People in the World survey, six of the top 21 wealthiest people in the world are Walton heirs.

  • · Salary Negotiations. Meg Whitman led the Playskool unit of Hasbro (HAS-), but left in 1998 to sign on with a fledgling Internet auction site. Whitman agreed to a compensation deal that gave her options to buy 14.4 million shares at just 3.5 cents a piece. Ebay went public six months later, helping Whitman make The Forbes Four Hundred Richest in America list in 1999. Today, the President & CEO owns approximately 31.2 million shares, or 2.3%, of Ebay (EBAY-$38.53), and Meg Whitman has risen to 224th place (in the World), worth an estimated $1.1 billion.
    · Second Job (Parallel career). Ms. Whitman also receives remuneration for serving on the Board of Directors of Procter & Gamble (PG-$57.62), DreamWorks Animation (DWA-$27.87), and until the summer of 2005, Gap, Inc. (GAP-$34.91). DEF 14-A filings reveal that Meg earned spending monies of $197,000 from P&G last year. As a non-employee Director of DreamWorks, Meg’s initiation rights included $100,00 in restricted stock and life insurance coverage in the amount of $750,000, payable in the event of her accidental death [from eating too much popcorn?] or disability.
    · Two-Income Family. In the past few years, Michael Dell, the founder and former chief executive of Dell Computer (DELL-$29.83) has seen his net worth fall an estimated $900 million to $17.1 billion [Forbes ranking-#12]. Michael’s wife, Susan, has gone to work. She created the fashion label Phi, which is distributed through Neiman Marcus.

  • · Ask Your Parents. John R. Egan, the son of EMC founder Richard Egan (#606, $1.3 Billion), owns approximately 2.3 million shares in Dad’s Company. Like other high-tech heirs, John has seen the value of his EMC stock plummet approximately 80% in value from a September 2000 (split-adjusted) price of $104 per share [versus to a 30.5% drop in value for the S&O 500 Information Technology Sector Index]. Can one blame him them, for looking to boost his discretionary income by other means?

    From October 1986 to September 1998, Mr. Egan, 48, served in a number of executive positions with EMC, including Executive Vice President, Operations and Executive Vice President, International Sales. Mr. Egan resigned as an employee of EMC in July 2002. Mr. Egan has been a principal in a venture capital firm since October 1998. Mr. Egan, age 48, has been a Director of EMC since May 1992, and is the Chair of the Mergers and Acquisitions Committee of EMC.

    A look at EMC’s Schedule 14A, filed with the SEC last month, disclosed some of the efforts John-John has made to “get his.” As a non-employee Director, he receives an annual retainer of $30,000; $24,000 ($3,000/meeting) for Board of Director meetings per annum; and, an annual retainer of $10,000 for the committee that he chairs. The 10Q Detective calculates that Egan made about $64,000 for serving on the Board in 2005.

    In 2005, EMC leased certain real estate from Carruth Management LLC., for which payments aggregated approximately $3,816,000. John and his siblings are the beneficial owners of Carruth.

    In 2005, EMC purchased from Nexaweb Technologies, Inc. a prepaid license to software products for approximately $3,500,000. John Egan is the managing partner and general partner in a limited partnership, which is a shareholder of Nexaweb.

    · Serial Entrepreneur. Ollen Bruton Smith, the founder and CEO of Speedway Motorsports, Inc. (TRK-$37.95), owns 63%, or 29 million shares of Speedway stock, worth an estimated $1.10 billion. Among other things, Speedway owns and operates the following NASCAR racetracks: Atlanta Motor Speedway, Bristol Motor Speedway, Lowe’s Motor Speedway, Las Vegas Motor Speedway, Infineon Raceway and Texas Motor Speedway.

  • Mr. Smith with a total net worth of approximately $1.42 billion was recently cited by Forbes magazine as number 562 in the rankings of the world’s richest men. Aside from the $1.75 million Mr. Smith made in salary and cash bonus’ last year, he also has founded several other companies that count Speedway as a customer. (Given undisclosed investment stakes in a plethora of related-network of subsidiaries, we believe that Mr. Smith’s real net worth is much higher than that which is stated.)
600 Racing, Inc and SMI Properties, both wholly owned subsidiaries of the Company, each lease an office and warehouse facility from Chartown, an affiliate of the Company through common ownership by Mr. Smith, under annually renewable lease agreements. Rent expense in 2005 for 600 Racing was approximately $197,000 and for SMI Properties was approximately $333,000.

Mr. Smith is also the Chairman & CEO, and a controlling stockholder in Sonic Automotive (SAH-$28.53), which is engaged in car retailing in the United States. As of March 1, 2006, the company operated 175 dealership franchises at 152 dealership locations, representing 37 brands of cars and light trucks, as well as 38 collision repair centers. Shareholders in Sonic Automotive must be happy to pay Mr. Smith’s $1.8 million in base & bonus, given the Company can count on Speedway being a reliable customer. According to public documents, each year Sonic Auto sells new vehicles to certain employees of Speedway.

Mr. Smith, 79, is a busy man. He also owns a related-finance company, Sonic Financial, with William Brooks, Speedway’s CFO. Speedway has made loans to, and paid certain expenses on behalf of Sonic Financial for “various corporate purposes.” Sonic Financial controls 59.1% of the voting class shares of Sonic Automotive and [among other activities] also leases various aircrafts to Sonic Automotive for business-related travel by Sonic executives. Sonic incurred costs in an aggregate amount of approximately $766,130 for the use of these aircraft during FY 2005.

· Perquisites are Requisite. Country Club dues, financial planning services, car & gasoline allowances, travel & award payments, entertainment accounts, personal time on the corporate jet—all these are examples often cited in the “Other Compensation” column of the Schedule 14-A proxy documents that publicly-traded companies file annually with the SEC.

In the DEF 14-A recently filed by Allergan Inc. (AGN-$107.15), the global healthcare company best-known for its ophthalmic and dermatology products, we noticed that the Company disclosed approximately $71,000 in such compensation for the top five executives in the company (from the Chairman down to the VP-Human Resources).

Our hats we tip to our readers who will earn an annual pay package comparable to the $750,000 to more than $3.0 million—exclusive of “other”—that these men at Allergan earned in 2005.

For the rest of us, ignoring the country club dues and personal time on the corporate jet, there are many jobs in our economy that do afford the luxury of “other” compensation. Sales jobs in pharmaceutical, software, and manufacturing—all offer varying perks (including gas & car allowances and entertainment accounts). True, a sales rep will not earn a base compensation equaling $375,000—but earning $12,0000 per year in “other” compensation is possible. And, remember the magic of compounding—thirty-two dollars saved a day over 20 years makes for a nice nest egg!

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